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Johannesburg - According to the latest FNB House Price Index, the average house price for April 2014 rose 8% year-on-year.
This is slightly slower than a revised 8.1% for March.
Real house price growth - when house prices are adjusted for consumer price inflation - came in at 1.93% year-on-year in March.
"This represents a slight slowing from revised 2.3% real price growth in February," said John Loos, FNB's household and property sector strategist.
"This is due in part to the pace of CPI inflation having quickened a little in March, from 5.9% in February to 6%, along with slightly slower house price growth from the previous month."
The average price of homes transacted was R954 443.
In real terms, the FNB House Price Index remained well-above levels of a decade ago, up 22.8% from March 2004.
"However, compared with last decade’s real average price peak, reached in December 2007, the February 2013 real price was still -18% lower," said Loos.
"In nominal terms, the April 2014 average price was 114.5% higher than the April 2004 price level, but only 20.5% above the December 2007 level."
Market strength
The FNB Valuers’ Market Strength Index, a gauge of the FNB Valuers’ perceptions of market strength, remained on an improving path in April.
However, the pace of improvement continued to slow steadily.
From a revised level of 49.1 in March, the FNB Valuers’ Market Strength Index rose further to 49.2 in April.
This rise was due to a further increase in the Valuers’ Demand Rating.
"However, the Valuers’ Residential Supply Rating did not contribute positively, rising slightly - negative from a market balance point of view - month-on-month for the 1st month since December 2012," said Loos.
"The FNB Valuers’ Market Strength Index appears to suggest that a slowing house price growth rate may be on the cards, with its own pace of improvement slowing too."
Outlook
During April, some key high frequency economic indicators also suggested that some slowdown in the rate of improvement in the housing market may be in order as 2014 progresses.
"Notably, the South African Reserve Bank (Sarb) Leading Business Cycle Indicator for February declined at a more rapid rate than in the previous month, to the tune of -2.8% year-on-year. This points to possible near term economic weakness," said Loos.
"Significant in this data release was that the Sarb pointed to the leading indicator for SA’s major trading partner countries as having a negative influence on the domestic leading indicator along with global commodity prices for key SA commodity exports."
Insolvencies figures for February rose again mildly year-on-year, suggesting mild deterioration in household sector credit health, Loos pointed out.
More such deterioration could be expected in an interest rate hiking environment, in his view.
"The possible negatives for the residential market in April went further to the release of the March Consumer Price Index (CPI), whose inflation rate rose further from a previous rate of 5.9% to 6.05% year-on-year," said Loos.
"This was not a big rise from month to month, but the key significance is that the rate has now just breached the 6% upper target limit of the Sarb."
He, therefore believes that CPI inflation moving to outside the 3% to 6% target range will bring about further interest rate hiking in the near term.
"Furthermore, the cumulative rise from a rate of 5.3% year-on-year as at November 2013 is becoming significant enough to shave something noticeable off already-pressured real disposable income growth," he said.
"Then came a more up to date leading indicator in the form of new car sales, which is also strongly consumer related. In April, these sales volumes fell year-on-year by -10.6% according to the monthly Naamsa release."
Abnormal month
While the month was perhaps somewhat abnormal due to having two school holiday periods, weakness in the data in prior months, too, suggests that it goes further than that and that January’s 1st interest rate hike along with weak disposable income growth is playing a role, according to Loos.
"We also saw weak February Mining and Manufacturing data for February being released in April, with poor mining figures being unsurprising given the strike action, and suggesting pressure on the economy from this sector."
Based on such economic weakness, and the assumption of further mild interest rate hiking, he continues to expect some mild slowing in year-on-year house price growth as 2014 progresses, ending the year lower in the 5-6% range, slightly below expected CPI inflation.
"Such a mild slowing would be a 'healthy' situation, as we believe it would reflect a housing market moving in line with weak economic fundamentals, as it should," said Loos.
"Finally, the combination of 8% house price growth and a higher 9% prime rate should continue to keep the market by-and-large healthy in terms of containing levels of speculative activity."
He said FNB's alternative measure of Real Prime Rate, using house prices with which to adjust prime rate instead of using CPI, remains in positive territory to the tune of 1% in April.
"This situation remains favourable in terms of curbing speculative behavior, compared with the 2004/5 period where a strongly negative real rate promoted speculative behavior on a large scale," said Loos.
This is slightly slower than a revised 8.1% for March.
Real house price growth - when house prices are adjusted for consumer price inflation - came in at 1.93% year-on-year in March.
"This represents a slight slowing from revised 2.3% real price growth in February," said John Loos, FNB's household and property sector strategist.
"This is due in part to the pace of CPI inflation having quickened a little in March, from 5.9% in February to 6%, along with slightly slower house price growth from the previous month."
The average price of homes transacted was R954 443.
In real terms, the FNB House Price Index remained well-above levels of a decade ago, up 22.8% from March 2004.
"However, compared with last decade’s real average price peak, reached in December 2007, the February 2013 real price was still -18% lower," said Loos.
"In nominal terms, the April 2014 average price was 114.5% higher than the April 2004 price level, but only 20.5% above the December 2007 level."
Market strength
The FNB Valuers’ Market Strength Index, a gauge of the FNB Valuers’ perceptions of market strength, remained on an improving path in April.
However, the pace of improvement continued to slow steadily.
From a revised level of 49.1 in March, the FNB Valuers’ Market Strength Index rose further to 49.2 in April.
This rise was due to a further increase in the Valuers’ Demand Rating.
"However, the Valuers’ Residential Supply Rating did not contribute positively, rising slightly - negative from a market balance point of view - month-on-month for the 1st month since December 2012," said Loos.
"The FNB Valuers’ Market Strength Index appears to suggest that a slowing house price growth rate may be on the cards, with its own pace of improvement slowing too."
Outlook
During April, some key high frequency economic indicators also suggested that some slowdown in the rate of improvement in the housing market may be in order as 2014 progresses.
"Notably, the South African Reserve Bank (Sarb) Leading Business Cycle Indicator for February declined at a more rapid rate than in the previous month, to the tune of -2.8% year-on-year. This points to possible near term economic weakness," said Loos.
"Significant in this data release was that the Sarb pointed to the leading indicator for SA’s major trading partner countries as having a negative influence on the domestic leading indicator along with global commodity prices for key SA commodity exports."
Insolvencies figures for February rose again mildly year-on-year, suggesting mild deterioration in household sector credit health, Loos pointed out.
More such deterioration could be expected in an interest rate hiking environment, in his view.
"The possible negatives for the residential market in April went further to the release of the March Consumer Price Index (CPI), whose inflation rate rose further from a previous rate of 5.9% to 6.05% year-on-year," said Loos.
"This was not a big rise from month to month, but the key significance is that the rate has now just breached the 6% upper target limit of the Sarb."
He, therefore believes that CPI inflation moving to outside the 3% to 6% target range will bring about further interest rate hiking in the near term.
"Furthermore, the cumulative rise from a rate of 5.3% year-on-year as at November 2013 is becoming significant enough to shave something noticeable off already-pressured real disposable income growth," he said.
"Then came a more up to date leading indicator in the form of new car sales, which is also strongly consumer related. In April, these sales volumes fell year-on-year by -10.6% according to the monthly Naamsa release."
Abnormal month
While the month was perhaps somewhat abnormal due to having two school holiday periods, weakness in the data in prior months, too, suggests that it goes further than that and that January’s 1st interest rate hike along with weak disposable income growth is playing a role, according to Loos.
"We also saw weak February Mining and Manufacturing data for February being released in April, with poor mining figures being unsurprising given the strike action, and suggesting pressure on the economy from this sector."
Based on such economic weakness, and the assumption of further mild interest rate hiking, he continues to expect some mild slowing in year-on-year house price growth as 2014 progresses, ending the year lower in the 5-6% range, slightly below expected CPI inflation.
"Such a mild slowing would be a 'healthy' situation, as we believe it would reflect a housing market moving in line with weak economic fundamentals, as it should," said Loos.
"Finally, the combination of 8% house price growth and a higher 9% prime rate should continue to keep the market by-and-large healthy in terms of containing levels of speculative activity."
He said FNB's alternative measure of Real Prime Rate, using house prices with which to adjust prime rate instead of using CPI, remains in positive territory to the tune of 1% in April.
"This situation remains favourable in terms of curbing speculative behavior, compared with the 2004/5 period where a strongly negative real rate promoted speculative behavior on a large scale," said Loos.
